Continuing the fight against 1071
We remain committed to reining in the CFPB’s unconstitutionally broad Sec. 1071 Final Rule ...”
On Monday, July 31, TBA, Rio Bank and the American Bankers Association scored a major victory in our fight to prevent the finalization of the Consumer Financial Protection Bureau’s Final Rule implementing Sec. 1071 of the Dodd-Frank Act, the small business lending data collection rule. It has positive implications for hundreds of banks in Texas and thousands across the U.S.
In April of this year, TBA and McAllen-based Rio Bank sued the CFPB, challenging the Final Rule on the basis that it violates both the U.S. Constitution and the Administrative Procedures Act. Our constitutional challenge stems from the fact that the New Orleans-based Fifth Circuit Court of Appeals held the CFPB’s funding structure unconstitutional last fall (Community Financial Services Association v. CFPB).
Because the Final Rule was derived from unconstitutional sources, our suit argues, the rule should be invalidated. Our suit goes on to argue that the Final Rule was not issued in accordance with the law because of the agency’s unconstitutional funding structure, thus, the rule is invalid and should be set aside.
Our suit also argues that the Final Rule goes far beyond the statutory scope of Sec. 1071 because the agency took three pages of statutory text and extended it to an 888-page final rule. The 13 data points required by statute have morphed into 81 data points and subfields, and the agency’s cost-benefit analysis for the Final Rule was improperly conducted on the statutorily required 13 data points, not the 81 requirements in the published rule. Finally, the CFPB violated the Administrative Procedures Act when it failed to address comments the agency received relevant to the purpose of the statute.
The American Bankers Association joined our suit as a co-plaintiff on May 14, and on May 26, we filed a Motion for Preliminary Injunction arguing the U.S. District Court for the Southern District of Texas should enjoin the Final Rule until the Supreme Court resolves the constitutionality of the CFPB’s funding structure. (The Court is scheduled to hear oral arguments in the Community Financial case on October 4, and a final decision is expected by June 2024.)
In our Motion for Preliminary Injunction, we argued that the extraordinary remedy of an injunction is warranted because the entities subject to Sec. 1071 will be forced to spend millions of dollars in unrecoverable costs between now and the time the Supreme Court issues its Community Financial decision. Because of the substantial likelihood that our case will succeed on its merits, these resources — both in terms of human capital and infrastructure and system investments — constitute the irreparable injury required for a court to issue an injunction.
U.S. District Court Judge Randy Crane agreed with our arguments and granted the requested injunction. Again, this is a major win for the industry because it pauses the implementation of Sec. 1071 until after the Supreme Court renders the Community Financial decision. Unfortunately, despite the fact that our motion requested a nationwide injunction applicable to all small business lenders subject to Sec. 1071, Judge Crane limited the injunction’s application to just members of TBA and the ABA. So we will continue our legislative efforts and other avenues to see relief extended to all banks, regardless of affiliation or non-affiliation.
While we are very pleased with the fact that the injunction was issued and our members will be able to pause their efforts to implement Sec. 1071, this does not mean that our underlying suit will languish. We remain committed to reining in the CFPB’s unconstitutionally broad Sec. 1071 Final Rule, a bureaucratic behemoth produced by an agency answerable to no one on Capitol Hill. Stay tuned for ongoing updates as TBA continues to fight for Texas bankers!